Time to shut down the US Federal Reserve?
I have been trying to stick to blogging more about specific long and short stock ideas instead of whining about the economy and government lately, but this really got my goat. It is absolutely astonishing to me how pompous and arrogant the people at the U.S. Federal Reserve are. For me, the absolute last straw was the release of the minutes from a 2004 Fed meeting where Alan Greenspan was quoted as saying the following:
"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand."
Oh really? I'd love to see what would have happened if you hadn't fully understood exactly what was going on. Thanks for protecting the unwashed masses like myself from certain economic destruction. Wait a minute...aren't you one of the people who is most responsible for the massive real estate bubble and subsequent implosion that we all have been forced to endure? Good grief.
Today I came across another gem of a statement by a Fed official. This one comes from Kartik Athreya, senior economist for the Richmond Fed. Mr. Athreya has written a paper on how people who blog about the economy are as Ambrose Evans-Pritchard puts it "chronically stupid and a threat to public order."
Here's what Kartik says in his paper, supposedly verbatim (I say supposedly because I have not actually seen the report, but the source is reputable):
“Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.”
“The response of the untrained to the crisis has been startling. The real issue is that there is an extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.”
“Economics is hard. Really hard. You just won’t believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy. In fact, we would all be better off if we just ignored these clowns.”
The fools at the Federal Reserve, including the mighty chief economist for the Richmond Fed, have destroyed any remaining credibility the field of economics had left. Most paid economists are completely worthless. One would be better off putting a bunch of monkeys in a room with darts and letting them guess where the economy is headed.
I love Ambrose Evans-Pritchard's rant on this subject in today's Daily Telegraph:
Time to shut down the US Federal Reserve?
The current generation of economists have led the world into a catastrophic cul de sac. And if they think we are safely on the road to recovery, they still fail to understand what they did.
Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour.
They ran ever-lower real interests with each cycle, allowed asset bubbles to run unchecked (Ben Bernanke was the cheerleader of that particular folly), blamed Anglo-Saxon over-consumption on excess Asian savings (half true, but still the silliest cop-out of all time), and believed in the neanderthal doctrine of “inflation targeting”. Have they all forgotten Keynes’s cautionary words on the “tyranny of the general price level” in the early 1930s? Yes they have.
They allowed the M3 money supply to surge at double-digit rates (16pc in the US and 11pc in euroland), and are now allowing it to collapse (minus 5.5pc in the US over the last year). Have they all forgotten the Friedman-Schwartz lessons on the quantity theory of money? Yes, they have. Have they forgotten Irving Fisher’s “Debt Deflation causes of Great Depressions”? Yes, most of them have. And of course, they completely failed to see the 2007-2009 crisis coming, or to respond to it fast enough when it occurred...
And now the Fed tells us all to shut up. Fie to you sir.
The 20th Century was a horrible litany of absurd experiments and atrocities committed by intellectuals, or by elite groupings that claimed a higher knowledge. Simple folk usually have enough common sense to avoid the worst errors. Sometimes they need to take very stern action to stop intellectuals leading us to ruin.
The root error of the modern academy is to pretend (and perhaps believe, which is even less forgiveable), that economics is a science and answers to Newtonian laws...
As for the Fed, I venture to say that a common jury of 12 American men and women placed on the Federal Open Market Committee would have done a better job of setting monetary policy over the last 20 years than Doctors Bernanke and Greenspan.
Actually, Greenspan never got a Phd. His honourary doctorate was awarded later for political reasons. (He had been a Nixon speech-writer). But never mind.
While most people know that the Federal Reserve recently released the official minutes of its meetings during the Greenspan era, what many people don't know is that these meetings were actually videotaped as well. The following is just released footage of an actual Federal Reserve policy meeting: